RUDOLF Diesel, the German inventor of the engine named after him, never got used to the idea that it ended up being powered by dirty, non-renewable crude oil, rather than the humble hemp oil he originally intended. Fifteen years after its invention in his 1897, he declared: “The use of vegetable oils for engine fuels may seem insignificant today. But such oils may become, in the course of time, as important as petroleum and the coal tar products of the present time.”

After a century which has turned out to be the age of oil, his prediction may actually now be coming true: Among the most promising future alternatives to crude oil are vegetable oils and ethanol, the alcohol that can be derived from any starchy crop such as wheat or corn.

Using these biofuels is not new. In 1908, Henry Ford’s Model T, which turned the automobile from an aristocrat’s plaything to a mode of mass transportation, was designed to run on corn ethanol. But the collapse in crude prices that followed the Texas oil rush destroyed the competitiveness of vegetable fats and corn spirits, and petrol emerged as the dominant fuel.

Now, as the price of oil continues to climb steadily upwards, biofuels from renewable sources are starting to look attractive again. The reasons for their adoption go beyond the sky-high cost of crude, however; in the US, energy security is high on the political agenda and the farming community, spying another use for its agricultural products, is lobbying hard; in Europe governments and consumers alike are preoccupied with curbing harmful emissions. Another impetus for change is the steady depletion of the world’s oil stocks.

Last week, President Bush made a rare plea for Americans to curb non-essential driving as part of an effort to reduce high petrol prices following the two hurricanes that have struck the Gulf of Mexico coast. Until now, his administration has focused on bolstering supply rather than limiting demand.

The race is on to find more fuel-efficient cars, be they diesel, flex-fuels (a mix of petrol and alcohol) or those run on futuristic fuel cells. Hybrid engines which supplement ordinary petrol engines with electric power in a bid to cut fuel consumption have moved from being a niche technology into the mainstream, with August’s oil price spike leading to a quadrupling in sales. Car manufacturers are struggling to meet the high demand.

At the Frankfurt motor show earlier this month, hybrids were all the rage. Audi, BMW, Mercedes Benz, Porsche and Volkswagen all plan to have the petrol electric cross available by the end of the decade. It is an abrupt U-turn by the manufacturers who previously regarded hybrids as a dead-end technology that does not deliver on its promises. Anticipated demand in America where the Toyota’s hybrid, the Prius, has been a runaway success has forced them to think again.

Celebrity endorsement from the Hollywood A-list has helped raise the cars’ profile. Cameron Diaz drives one, so does Julia Roberts, and Sting. What was an interesting but costly diversion has suddenly become a must have technology as consumers rush to flex their green credentials. But is the hybrid the best option for the energy-conscious consumer?

Brazil was the original biofuels pioneer, reacting to the 1970s oil crisis with a “pro-ethanol” programme so successful that bythe mid-1980s, ethanol-only vehicles accounted for 90% of new car sales. But a poor harvest in 1990 led to a national ethanol shortage. Drivers never trusted the fuel again. Flex-fuel cars remove that risk, and they now account for some 40% of new car sales in Brazil. The introduction of Volkswagen’s Totalflex Golf in March 2003 has brought ethanol use back to its heyday; production of ethanol in Brazil shot up between 2000 and 2004 from 210m to 290m tonnes, after remaining stagnant for a decade.

Ford followed Volkswagen to Rio with its Ford Focus Flexi-Fuel, also big in Sweden. Fiat, General Motors, Peugeot and Renault have also launched flexi-fuel cars. The cars have sensors that monitor the fuel and adjust the engine to cope with whatever mix of ethanol and petrol is in the tanks.

The US has embraced biofuels enthusiastically. This year’s Energy bill stipulated that biofuels should account for 10% of US transport fuel by 2009. Biofuel use is already up to 5% in 22 states in the Midwest, but meeting the target will require a massive ramping up of production.

Tony Radich, who heads the biofuels wing of the US department of energy, told The Business: “It looks like ethanol is going to be the biggest alternative fuel. We’ve got a long way to go on hydrogen. First we have to make the fuel-cell cars work acceptably, then we have to make them cost something less than a million dollars.”

Most cars can run quite happily with up to 10% of low-emissions ethanol or biodiesel mixed in with their fuel. Doing so can even improve performance. The new SAAB 9.5 Bio Power car has 20% more power when using 85% bioethanol than when it uses petrol.?

In the UK Tesco and Sainsbury’s both mix Brazilian sugar cane ethanol into their green fuel brands. Still, the UK is a relative laggard in taking up biofuels. Just 0.3% of the UK’s fuel consumption comes from such fuels, putting the country far behind the 2% recommended for this year in Europe’s biofuels directive and making the 5.57% targeted for 2010 look completely out of reach. The UK has very limited production: Argent Energy’s plant in Motherwell near Glasgow makes biodiesel from animal fat and used cooking oils. But several new plants are on the way. Aim-listed Biofuels Corporation is nearing completion of its refinery in Teesside, and Greenergy is building biodiesel plant near Imingham. ?

Britain produces no bioethanol at all, but Wessex Grain, a cooperative of wheat farmers, last Monday announced that it had raised £50m from CSFB and Tudor Capital to build a £130m bioethanol plant in Somerset.

The UK produces about 16m tonnes of wheat a year and only consumes 12m tonnes. If the 4m tonne surplus went into bioethanol, farmers would supply 5% o­f the UK’s fuel demand at a stroke. Bioethanol’s critics claim the tractors, fertilisers, and fermentation involved in producing ethanol use more energy than the fuel contains, and the process overall emits more carbon than the same amount of petrol. Chief among the critics is Professor David Pimentel of Cornell University in the US, who argues corn ethanol uses 29% more energy than it produces. This is hotly disputed by the US Department of Agriculture. The UK’s government’s Central Science Laboratory claims that fuel bioethanol from wheat produces 65% less greenhouse gases than petrol.

Pimentel claims entirely replacing petrol and diesel would require 97% of US arable land to be farmed with corn for ethanol. If the UK diverted the entire national wheat crop to bioethanol, it would replace just 20% of demand. Malcolm Shepherd, managing director of Green Spirit, walks the middle line. He says: “I’m not suggesting for a moment that we can possibly substitute all petrol because we use massive amounts. None of these energy questions can be addressed by a single policy. But we’ve got to look at the alternatives: This is one of them.”

Iogen, a Canadian company backed by Royal Dutch Shell, is developing a process which could vastly increase the potential fuel produced by farmers, by allowing ethanol to be produced from agricultural waste such as corn cobs and straw. Iogen hopes to commercialise the process from 2007. The process uses enzymes to convert the cellulose in agriculture residues into sugars.

In the past, economics held bioethanol back but these days it can have the edge pricewise on petrol or diesel. “At the moment, biodiesel prices are attractive in countries like the UK where there’s a tax break,” according to Greenergy, which is building a biodiesel plant in Immingham. It is the largest importer and user of biofuels in the UK and sells to Sainsbury’s.

Last week’s official Platts price for diesel is $655 a tonne. German biodiesel made from rape seed oil costs $930 a tonne, but the tax incentive in the UK is worth $400 a tonne. In Germany there’s no tax at all and 60% of lorries use pure biodiesel because its cheaper. A Greenergy trader said: “At the moment the economics work for biodiesel.”

FORD plans to produce 280,000 ethanol-capable vehicles in 2006. The carmaker already has about 1m such vehicles on the road. About 400 of America’s 176,000 fuelling stations sell ethanol. The technology of the moment, however, is hybrid engines. Toyota has been working on hybrids since the 1960s and is today’s leader thanks to the Prius. Toyota lost money on every one of the first-generation Prius cars it sold, and analysts said the latest version does no more than break even. But it has proved a design success.

The latest Prius is a svelte five-seat saloon that can do 100mph with a combined average fuel consumption of 65.7 miles per gallon and whose exhaust emissions are among the lowest of any car on the road. It runs on petrol, electricity, or both, and sophisticated computer controls ensure that the batteries are always charged by the petrol engine.

Honda, the other hybrid pioneer, has just announced a hybrid version of its new Civic saloon. Sales of hybrids are expected to triple over the next two years but from a low base; the business case is not proven, critics say. Installing what are, in effect, two power units increases the vehicle’s weight, complexity and cost. It may meet the regulations but it does not represent an increase in efficiency.

Dave Cole, president of the Centre for Automotive Research in Ann Arbor, Michigan, estimates hybrid vehicles cost £2,200 to £3,900 extra to make, and provide a 30% fuel saving. But, even after the recent rise in petrol prices, most customers do not save enough on fuel to justify the extra cost, so carmakers end up charging a lower premium and earning less than they could on an ordinary car.

The fear of low volumes has prompted German and US carmakers to seek alliances to lower the cost of producing hybrids. Earlier this year, two of Detroit’s “Big Three” carmakers, General Motors and Daimler Chrysler, agreed to work together on the development of the cars.

Carlos Ghosn, joint chief executive of Nissan and Renault, has described petrol/electric hybrid cars as a “terrible” business proposition. Earlier this month he said: “Hybrid sales account for less than 1% of global sales. It is a niche technology. The question is how much the consumer is willing to pay, and if they are unsure at $70 a barrel (for oil) I would be very worried. For now it is a terrible business prospect.” His disdain did not stop him trying out a Honda hybrid at the Frankfurt show.

The German manufacturers maintain that diesel engines can achieve comparable, or better, fuel consumption than hybrids. In some European countries, diesels now account for more than 50% of new car sales.

But diesel cars have never caught on in America. Even with increased fuel prices after Hurricane Katrina, petrol in America still costs half as much as in Britain, so fuel consumption is less of a concern to those who favour big, heavy 4x4s and pick-up trucks. The car of choice for the environmentally friendly American is the hybrid.

Honda for one appears to be hedging its bets, saying that hybrids will form part of its fuel-efficient offering in the medium term and that European consumer favours diesel engines. Demand for hybrids is certainly robust. Honda had sold 30,000 of the cars in the US by August, already more than the whole of 2004 when total sales were 27,000. In Europe, volumes are lower but sales have more than doubled: 1,967 were sold to August compared to 855 in 2004.

Honda also intends to make further improvements to the internal combustion engine. In November, it will launch a new Civic 1.8 i-VTEC which will be marketed as having the performance of a 2.1 litre engine using the fuel of a 1.6 litre model. Greater fuel efficiency – 20% better than existing engines – will be achieved through reducing internal friction as well as pumping losses. Long-term, Honda is putting its money on emissions-free fuel cells which it is trialling in the US. But the refuelling infrastructure has to be in place before developed nations can embark on the hydrogen highway.

The switchover to a new power system could be the most dramatic change in powered transport the world has seen: 590m cars would be replaced. But it is unlikely before 2030. In the meantime, consumers will be offered hybrids or cars that run on ethanol. Whether they go for them in a big way remains to be seen. Car manufacturers are all to aware that the road to a zero-emission, energy efficient utopia is littered with ideas that never caught on.